PART FIVE: *Telling Your ESG Story*
In a 2020 EY investor survey, practically all investors (98 percent) said they evaluate non-financial performance based on corporate disclosures, with almost three quarters (72 percent) saying they conduct a structured, methodical evaluation.
The takeaway here is that the audience for your non-financial—ESG—disclosures is practically your entire investor base.
Strong ESG communications hold appeal for other stakeholders, as well, and are, for instance, of keen interest to both current and prospective employees.
In recent research by SHRM, the Society for Human Resource Management, 74 percent of executives said their ESG strategy is central to their employer brand. Meanwhile, one-third (33 percent) of U.S. workers employed by organizations with ESG-related goals say that their organization’s ESG strategy was a factor in their decision to apply to that organization to work.
Given the much-publicized war for talent, making your ESG case clearly and effectively can be an important recruitment tool.
Keep an Eye On the Regulators
The SEC’s final climate disclosure rules have been finalized, but are on hold due to legal challenges. Due to the increasingly politicized nature of ESG, companies are evaluating different ways to tell their ESG story using new terminology (i.e. “sustainability”).
Know the Standards
An ESG expert recently described the TCFD [Task Force on Climate-Related Financial Disclosures] as “de facto mandatory” because most large public companies in the U.S., Canada, and Europe are adopting its reporting priorities. ISSB has also emerged as a critical standard to watch.
Consider Making ESG Part of Your Financial Conversation
In the first quarter of 2023, just 74 S&P 500 companies mentioned ESG in their earnings calls, down from 156 in late 2021, according to FactSet. For IROs today, discussing ESG often comes down to a judgment call. The conventional wisdom seems to be that if you can talk about ESG as financially material to earnings, then yes, by all means address it. If not, the jury is still out.
Consider an ESG Roadshow
Doing a deep dive into ESG at a dedicated roadshow is an appealing option for many companies. Some IROs find they get the most bang for their buck by inviting interested stakeholders to a virtual event.
An ESG Best Practices Checklist
In June 2023, BlackRock’s CEO Larry Fink told a crowd gathered at Aspen Ideas that he was abandoning the term “ESG” because it had become weaponized by both the far left and the far right.
This powerful statement from one of the world’s foremost investors is an indicator that an anti-ESG backlash is afoot.
The anti-ESG backlash was also glaringly obvious this past proxy season; 94 anti-ESG proposals made it to shareholders’ ballots, almost ten percent of all proposals submitted.
For this reason, savvy IROs are starting to communicate about ESG topics under the umbrella of materiality and managing risks and opportunities as effectively as possible.
A Heightened Awareness of Greenwashing
“Greenwashing” has been defined by Merriam-Webster as “the act or practice of making a product, policy, activity, etc., appear to be more environmentally friendly or less environmentally damaging than it really is.”
New research is showing that data quality and greenwashing are serious impediments to greater ESG investing.
A 2023 survey of global institutional investors by BNP Paribas cited “incomplete and inconsistent data and research” at 71 percent, closely followed by “greenwashing” at 61 percent, as significant barriers to greater adoption of ESG investing.
Fortunately for IROs, charges of greenwashing are easy to avoid. Providing year-over-year information showing progress towards a specific ESG goal will almost certainly be better received than communicating vague aspirations not backed by data.
